Answer :
The equilibrium price in the market for loanable funds is the long-term real interest rate. This rate is determined by the intersection of the demand for funds by borrowers and the supply of funds from lenders. Here's how it works:
1. Demand for loanable funds: When interest rates are low, there is usually a higher demand for funds as borrowing becomes cheaper. This demand comes from individuals, businesses, and governments looking to borrow money for investments or projects.
2. Supply of loanable funds: On the other hand, the supply of funds comes from savers, investors, and financial institutions who are willing to lend their money out. The supply increases as interest rates rise because lenders can earn more on their investments.
3. Equilibrium: The equilibrium real interest rate is where the demand for funds equals the supply of funds. At this point, there is no excess demand or supply in the market, leading to a stable long-term real interest rate.
Therefore, in the context of the market for loanable funds, the equilibrium price refers to the long-term real interest rate that balances the borrowing and lending activities of participants in the market.
